HARFORD COMMUNITY COLLEGE COMPONENT UNIT FINANCIAL STATEMENTS AND SINGLE AUDIT COMPLIANCE REPORTS YEAR ENDED JUNE 30, 2017

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1 COMPONENT UNIT FINANCIAL STATEMENTS AND SINGLE AUDIT COMPLIANCE REPORTS

2 TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) 4 FINANCIAL STATEMENTS STATEMENT OF NET POSITION 14 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 15 STATEMENT OF CASH FLOWS 16 NOTES TO FINANCIAL STATEMENTS 18 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) SCHEDULE OF FUNDING PROGRESS FOR OTHER POSTRETIREMENT BENEFITS 46 SCHEDULE OF COLLEGE'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY 47 SCHEDULE OF COLLEGE'S CONTRIBUTIONS 48 BUDGETARY COMPARISON SCHEDULE - GENERAL OPERATING FUND (UNAUDITED) 49 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 50 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 52 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 54 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 55 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 56 SUMMARY SCHEDULE OF PRIOR FINDINGS AND QUESTIONED COSTS 58

3 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT Board of Trustees Harford Community College Bel Air, Maryland Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Harford Community College (the College), a component unit of Harford County, Maryland, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the College s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. The financial statements of The Harford Community College Foundation, Inc., the discretely presented component unit, were not audited in accordance with Government Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. (1)

4 Board of Trustees Harford Community College Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the College as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis, the Schedule of Funding Progress for Other Post Retirement Benefits, the Schedule of the College s Proportionate Share of the Net Pension Liability and Schedule of College s Contributions as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the College s basic financial statements. The schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and the Budgetary Comparison Schedule General Operating Fund are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Budgetary Comparison Schedule- General Operating Fund and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information, except for the budget information in the Budgetary Comparison Schedule- General Operating Fund marked unaudited in which we express no opinion, has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. (2)

5 Board of Trustees Harford Community College Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 31, 2017, on our consideration of the College's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control over financial reporting and compliance. a CliftonLarsonAllen LLP Plymouth Meeting, Pennsylvania August 31, 2017 (3)

6 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) JUNE 30, 2017 Overview of the Financial Statements and Financial Analysis The discussion and analysis of Harford Community College s ( the College or HCC ) financial statements provides an overview of the College s financial activities for the year ended June 30, Management has prepared this discussion along with the financial statements and related footnote disclosures. Management s Discussion and Analysis should be read in conjunction with the financial statements. Responsibility for the completeness and fairness of this information rests with the College. The entity-wide financial statements are designed to emulate corporate presentation models whereby all College activities are consolidated into one total. This approach is intended to summarize and simplify the user s analysis of the cost of various College services to students and the public. This report consists of three basic financial statements: the Statement of Net Position; the Statement of Revenues, Expenses, and Changes in Net Position; and, the Statement of Cash Flows. These statements provide an overall view of the College s financial activities, both current and long-term. Notes to the financial statements are required to complete the entity-wide statements and are an integral component of the basic financial statements. Statement of Net Position The Statement of Net Position is a financial statement that provides a fiscal snapshot of the institution s financial position at a selected point in time. Total net position represents the difference between total assets and total liabilities and is one of the indicators of the current financial condition of the College. Readers of the Statement of Net Position are able to determine the assets available to continue the operations of the College. Over time, changes in net position are indicators of the improvement or erosion of the College s financial health when considered along with non-financial facts, such as enrollment changes and the condition of facilities. The assets and liabilities are categorized between current and noncurrent. Current assets and current liabilities mature or become payable within the normal 12-month accounting cycles while noncurrent assets and liabilities mature or become payable after 12 months. For June 30, 2017, the College s current assets consist primarily of cash, short-term investments and accounts receivable while noncurrent assets consist primarily of capital assets, including property, plant, and equipment maintained by the College. All of the College s liabilities except compensated absences, net pension liability and other postemployment benefits are considered short-term in nature. Net position is divided into four major categories: Unrestricted - available to the College for any lawful purpose. Net investment in capital assets - the College s ownership equity in property, plant and equipment, net of related debt. Expendable restricted - available to be spent by the College after externally imposed stipulations have been fulfilled or after the passage of time. Nonexpendable restricted - result from contributions whose use is limited by donor-imposed stipulations that neither expire by the passage of time nor can be fulfilled or removed by the College s actions. (4)

7 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 CONDENSED STATEMENT OF NET POSITION June 30, 2017 % of total June 30, 2016 % of total Assets Current Assets $ 34,148, % $ 35,239, % Noncurrent Assets: Capital Assets 109,375, % 112,744, % Other Assets 3,816, % 1,552, % Total Noncurrent Assets 113,192, % 114,296, % Total Assets 147,340, % 149,536, % Deferred Outflows 460, % 394, % Liabilities Current Liabilities 10,796, % 13,481, % Noncurrent Liabilities 2,578, % 2,377, % Total Liabilities 13,374, % 15,859, % Deferred Inflows 64, % 93, % Net Position Net Investment in Capital Assets 109,375, % 112,744, % Restricted 69, % 69, % Unrestricted 24,915, % 21,164, % Total Net Position $ 134,360, % $ 133,978, % Fiscal Year 2017 compared to Net position increased $0.4 million from $134.0 million in fiscal year 2016 to $134.4 million in Current assets decreased by $1.1 million. Current assets consist primarily of cash and cash equivalents and accounts receivable, which include funds due for federal aid and for state funding of capital project expenses. Cash increased $3.6 million due to favorable operating performance within the general fund and the timing of the state reimbursement of Construction in Progress expenditures paid by the College in Accounts receivable decreased $3.1 million which was driven by a large decrease in receivables due from the state and county for capital projects of $1.1 and $2.4 million, respectively. HCC is self-insured, and the $0.7 million increase in the deposit with trustee (Harford County) is a result of the favorable healthcare experience realized in fiscal year Prepaid expenses decreased $0.2 million while the receivable due from the HCC Foundation increased $0.3 million due to the timing of payments. Current liabilities decreased by $2.7 million. The key components of the College s current liabilities are accounts payable, accrued liabilities and unearned revenue. Accounts payable due to vendors declined $1.3 million due to the timing of invoices. Accrued payroll liabilities decreased by $1.1 million due to the last pay date of the fiscal year occurring on June 30 th, as all College full-time employees are paid to date. (5)

8 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 The unrestricted net position includes the fund balances contained within the College s plant fund budgets that are anticipated or in progress along with auxiliary service fund balances generated through operations. Currently, designations of $3.4 million are budgeted within the plant funds for various capital projects such as the Maryland Hall conversion, Chesapeake Front Door conversion and the Belcamp Hall renovations. Other plant fund balances are also internally designated for deferred projects, roof replacements, parking lot improvements and computer equipment and technology expenditures. Restricted net position consists of Russell Hudson student loans. The increase in unrestricted net position is a result of the favorable performance of expenditures within the operating fund coupled with the net income generated by the auxiliaries. Statement of Revenues, Expenses and Changes in Net Position The purpose of this statement is to present the revenues received and expenses paid by the College, both operating and non-operating, as well as any other revenues, expenses, gains and losses received or spent by the institution, over a period of time. (6)

9 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years Ended June 30, Percent Change OPERATING REVENUE Tuition and Fees $ 15,800,364 $ 14,529, % Auxiliary Enterprises 5,218,729 5,078, % Other 1,261,791 1,148, % Total Operating Revenue 22,280,884 20,757, % OPERATING EXPENSES 64,311,375 59,398, % Net Operating Loss (42,030,491) (38,640,474) 8.8% NONOPERATING REVENUES (EXPENSES) Certain Fringe Benefits Paid Directly by the State of Maryland 2,627,547 2,520, % State Grants and Contracts 13,135,440 12,782, % Federal Grants and Contracts 6,071,615 6,262, % Local Grants and Contracts 16,350,767 16,051, % Contributions 743, , % Interest Income 134,766 42, % Loss on Disposal of Assets (564,591) (258,227) 118.6% Total Nonoperating Revenues 38,499,356 38,251, % Loss Before Other Revenues (3,531,135) (389,163) 807.4% State Capital Grants 3,425,649 1,482, % Harford County Capital Grants 488,099 2,976, % INCREASE IN NET POSITION 382,613 4,069, % NET POSITION, BEGINNING OF YEAR 133,978, ,908, % NET POSITION, END OF YEAR $ 134,360,889 $ 133,978, % (7)

10 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 Generally speaking, operating revenues are received for providing goods and services to students and other constituencies and customers of the College. Operating expenses are paid to acquire or produce the goods and services that are provided in return for operating revenues, thus carrying out the mission of the College. Non-operating revenues are receipts for which goods and/or services are not provided. For example, state and local appropriations are considered non-operating because they are provided to the College by the appropriate governmental entity without it directly receiving commensurate goods and/or services. Fiscal Year 2017 compared to Net position increased $0.4 million or 0.3% for This increase can primarily be attributed to the surplus realized within the operating fund due to favorable performance versus the budget along with the net income provided to the College by the auxiliary enterprises. The state and county provided a total of $3.9 million in revenues for investment in capital assets. This revenue was more than offset by the $4.9 million in depreciation expense recorded on the College s capital assets. Net tuition and fees increased 8.7% primarily due to the $8 increase in tuition per credit hour. Scholarship allowances in 2017 are $5.9 million or 27.2% of gross tuition and fee revenue, which is a decrease of 4.2% from 2016 scholarship allowances of $6.7 million or 31.4% of gross tuition and fee revenue. This analysis continues to show that a significant portion of the College s students receive federal or some other form of financial assistance. The full-time equivalent (FTE) student enrollment decreased by 33 or 0.7%. Credit FTE students decreased by 108 while non-credit FTE students increased by 75. Analyzing operating and non-operating revenues together for 2017, tuition and fees net of scholarship allowances, comprise 25.7% of total revenues. State and county funding, including the state payment for retirement, provided an additional 52.4% of operating and non-operating revenues. Federal funding accounts for 9.9% of total 2017 revenues. The revenue from auxiliary enterprises accounts for 8.5% of total 2017 revenues. The statement of operating expenses provides more detail on the operating expenses from the previous table. The expenses include the functional classifications of all funds. (8)

11 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 OPERATING EXPENSES Years Ended June 30, Percent Change OPERATING EXPENSES Instruction $ 19,361,707 $ 19,169, % Academic Support 5,996,479 6,165, % Student Services 7,222,886 6,950, % Institutional Support 9,839,798 9,029, % Operations and Maintenance of Plant 8,260,273 4,905, % Scholarships 1,196,951 1,036, % Sub-Total 51,878,094 47,258, % Auxiliary Enterprises 4,898,039 4,825, % Certain Fringe Benefits Paid Directly by the State of Maryland 2,627,547 2,520, % Depreciation 4,907,695 4,793, % TOTAL $ 64,311,375 $ 59,398, % Instruction accounts for 30.1% of the total operating expense of the College. This figure does not include the state payment for retirement benefit associated with instruction. The instruction function increased 1.0% primarily due to the 2% base salary adjustment that occurred, partially offset by the vacant positions that existed in Academic support expenses decreased 2.7% in fiscal year This decrease is largely associated with the marketing research study that was performed by SimpsonScarborough in The increase in student services expenditures can be primarily attributed to the increase in financial aid refunds paid directly to students for awarded Pell grants. This increase in refunds to students occurred despite a slight decrease of approximately $0.3 million in total Pell grant expenditures in The portion of Pell grant awards applied to tuition and fees is netted against tuition and fee revenue on the Statement of Revenues, Expenses and Changes in Net Position. (9)

12 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 Institutional support increased 9.0% in 2017 mainly due to the increase in additional technology costs that were funded by the plant fund that is internally designated for equipment and technology purchases. Operations and maintenance of plant increased significantly in 2017 due to the renovation costs associated with the Edgewood capital project that were not capitalized along with other deferred maintenance related costs that the College incurred. Scholarships increased as a result of the $0.1 million or 39% increase in the high school waiver that is provided to students for certain math classes that are taught at the high schools. The very slight increase in auxiliary enterprise expenditures is primarily related to additional event activity in the arena that has also produced incremental revenue. Other major components of operating expenses include: the $2.6 million that represents the state s contribution for college employees to the Maryland state retirement system and the recognition of $4.9 million in depreciation on capital assets. Statement of Cash Flows The statement of cash flows presents detailed information about cash receipts and cash payments of the College. This statement helps users assess the College s ability to generate future cash flows, the ability to meet obligations as they come due, and its needs for external financing. The statement is divided into five parts. The first part deals with operating cash flows and shows the net cash used for the operating activities of the College. The second section reflects the cash received and spent for non-operating, non-investing and other non-capital financing purposes. The third section deals with cash flows from capital and related financing activities, providing information on the cash used for the acquisition and construction of capital and related items. The fourth part reflects the cash flows from investing activities and shows the purchases, proceeds, interest received and investment income from such activities. The fifth section reconciles the net cash used for operating activities to the operating income or loss reflected on the statement of revenues, expenses and changes in net position. CASH FLOWS Years Ended June 30, Percent Change Cash Provided By (Used In): Operating Activities $ (38,176,454) $ (30,805,504) 23.9% Noncapital Financing Activities 36,436,271 35,667, % Capital and Related Financing Activities 5,218,333 (6,423,341) % Investing Activities 134,766 42, % Net Increase (Decrease) in Cash 3,612,916 (1,519,307) % CASH, BEGINNING OF YEAR 26,763,030 28,282, % CASH, END OF YEAR $ 30,375,946 $ 26,763, % (10)

13 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 The primary cash receipts from operating activities consist of $15.3 million from tuition and fees and $5.2 million from auxiliary enterprises. Major cash outlays in operating activities consist of salaries and benefits of $36.0 million and payments to suppliers of $23.9 million. The increase in payments to suppliers and to employees is driving the decrease in cash used in operating activities. The increase in payments to suppliers is driven by the Edgewood Hall renovation costs that were not capitalized and other general deferred maintenance costs. Payments to employees increased due to the salary adjustment that was awarded to employees in This increase in cash outlays is partially offset by a $1.0 million increase in cash receipts from tuition and fee payments due to the increase in the tuition rate. Federal, state and local funding is the primary source of noncapital financing. The accounting standards require that the College reflect this source of revenue as non-operating even though the College s budget depends on this funding to continue, or expand, the existing level of operations. Cash provided by noncapital financing activities increased 2.2%. The increase in cash receipts from the county and state provided to the College for operations leads to this overall increase in noncapital financing activities. The primary financing activities included within the report are associated with capital appropriations for the College s commitment to expansion of new facilities and the continued renovation of its older facilities. Net cash flows provided/used in capital financing activities increased from $(6.4) million in 2016 to $5.2 million in The College makes significant capital purchases with the understanding that reimbursement by the state and county will follow, sometimes in the subsequent fiscal year. These reimbursable capital expenditures incurred in the renovation of Edgewood Hall are responsible for the sizable cash outlay in The College then received the cash flows from the state and county for the Edgewood Hall renovation in fiscal year Capital Asset and Debt Administration Capital Assets At June 30, 2017, the College had $157.9 million invested in capital assets, less accumulated depreciation of $48.6 million. Depreciation charges for the current year totaled $4.9 million. CAPITAL ASSETS, NET June 30, Percent Change CAPITAL ASSETS Land and Land Improvements $ 21,887,374 $ 21,415, % Buildings 123,088, ,926, % Furniture and Equipment 6,279,395 6,238, % Computer Technology 4,217,880 4,064, % Vehicles 840, , % Library Books 1,634,651 1,584, % Construction in Progress - 4,968, % Total 157,947, ,020, % Less: Accumulated Depreciation 48,572,349 45,276, % NET CAPITAL ASSETS $ 109,375,575 $ 112,744, % (11)

14 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 The resurfacing of parking lots and the construction of a new right turn lane on Route 22 drives the $0.5 million increase in land and land improvements. The portion of the Edgewood Hall renovation that was capitalized leads to the $4.2 million increase in buildings. The majority of these additions to land improvements and buildings were included in construction in progress at the end of fiscal year Debt The College has no long-term debt as of June 30, (12)

15 MANAGEMENT DISCUSSION AND ANALYSIS (UNAUDITED) (CONTINUED) JUNE 30, 2017 Economic Factors That Will Affect the Future The College s general operations are funded through three primary revenue sources: tuition and fee payments from students, funding appropriations from Harford County, and funding appropriations from the State of Maryland. Prior to 2009, tuition and fees accounted for approximately one-third of the College s total operating revenues. Credit enrollment increased at very high rates during fiscal years This enrollment increase aligned with the theory that during economic recessions, community college enrollments generally rise. During this same period, there was a significant decrease in public funding, specifically county appropriations. As a result, tuition and fee revenues eclipsed county appropriations as the leading revenue source for the College in This trend has continued and the gap has widened further in succeeding years. As the College cannot influence the various economic variables which correlate to the public support it receives, HCC administration continues to develop strategies to ensure the College generates necessary operating revenues in future years. The College s Board of Trustees approved an $8 tuition increase per credit hour for fiscal year In fiscal year 2018, a 2% or $2.48 tuition increase per credit hour was approved. This smaller increase qualified the College for a state one-time supplemental grant of approximately $192,000 for approving a tuition rate increase measured at or below 2%. As a result of the actions taken to increase tuition and fee revenue coupled with the effective management of operating expenditures, the College has been able to add funds to the undesignated fund balance operating surplus in each of the past three fiscal years. The College will continue to evaluate the need for future tuition increases through a strong budgeting tool developed in-house that allows finance to assign certain assumptions, producing 10 years of high level estimated revenues and expenditures that can be utilized for planning purposes. A great deal of uncertainty continues to exist surrounding future credit enrollments. Fiscal years have featured enrollment declines in the range of 3.0%-3.5% each year. This declining enrollment has also been common among other community colleges. The enrollment management team continues to implement various strategies in an attempt to boost enrollment. Although HCC is optimistic that these strategies will have a favorable impact for upcoming semesters, the College continued with a conservative budgeting approach for 2018, assuming that billable credit hours will decline at a similar rate as experienced in recent years. Deferred maintenance will continue to be a very important issue in future years due to the age of buildings and other capital assets on campus. The College currently has certain unrestricted funds designated for improvements such as roof replacements and the resurfacing of parking lots. Further, the College began designating a portion of the unrestricted fund balance for general deferred maintenance costs. As we continue to plan for these forthcoming expenses, the College will evaluate and explore other revenue opportunities which could have the potential to provide additional funding resources. Requests for Information The financial report is designed to provide a general overview of the College s finances. Questions concerning any of the information provided in this report or other requests for additional information should be addressed to the Harford Community College Finance Office. (13)

16 STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Current Assets: Harford Community College Component Unit Harford Community College Foundation Cash and Cash Equivalents $ 26,559,508 $ 760,790 Accounts Receivable, Net 4,868,905 - Promises to Give, Net - 463,398 Inventories 393,884 - Prepaid Expenses and Other Assets 399,363 31,820 Due from Foundation 280,191 - Deposit with Trustee 1,646,186 - Total Current Assets 34,148,037 1,256,008 Noncurrent Assets: Cash and Cash Equivalents, Capital Projects 3,816,438 - Investments - 8,910,187 Land and Construction in Progress 3,741,759 - Capital Assets being Depreciated 154,206,165 - Less: Accumulated Depreciation (48,572,349) - Total Noncurrent Assets 113,192,013 8,910,187 Total Assets 147,340,050 10,166,195 Deferred Outflows- Pension 460,497 - LIABILITIES Current Liabilities: Accounts Payable 1,593,482 - Accrued Liabilities 829,020 - Deposits Held for Students 49,471 - Unearned Revenue 8,120,697 33,350 Compensated Absences, Current 117,982 - Due to College - 280,191 Other Liabilities 85,520 - Total Current Liabilities 10,796, ,541 Noncurrent Liabilities: Other Post-Employment Benefits 225,221 - Net Pension Liability 1,330,868 - Compensated Absences, Net of Current Portion 1,022,402 - Total Noncurrent Liabilities 2,578,491 - Total Liabilities 13,374, ,541 Deferred Inflows- Pension 64,995 - NET POSITION Unrestricted 24,915, ,686 Net Investment in Capital Assets 109,375,575 - Restricted: Expendable 69,523 5,551,398 Nonexpendable - 3,906,570 Total Net Position $ 134,360,889 $ 9,852,654 See accompanying Notes to Financial Statements. (14)

17 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Harford Community College OPERATING REVENUES Student Tuition and Fees (Net of Scholarship Allowances of $5,904,684) 15,800,364 Component Unit Harford Community College Foundation $ $ - Gifts and Contributions - 707,033 Auxiliary Enterprises 5,218,729 - Other Operating Revenues 1,261,791 - Total Operating Revenues 22,280, ,033 OPERATING EXPENSES Instruction 19,361,707 - Academic Support 5,996,479 - Student Services 7,222,886 - Institutional Support 9,839,798 - Operations and Maintenance of Plant 8,260,273 - Scholarship Expense 1,196,951 - Certain Fringe Benefits Paid Directly by the State of Maryland 2,627,547 - Other Operating Expenses - 174,950 Depreciation 4,907,695 - Auxiliary Enterprises 4,898,039 - Total Operating Expenses 64,311, ,950 OPERATING INCOME (LOSS) (42,030,491) 532,083 NONOPERATING REVENUES (EXPENSES) Certain Fringe Benefits Paid Directly by the State of Maryland 2,627,547 - Federal Grants and Contracts 6,071,615 - State of MD Grants and Contracts 13,135,440 - Harford County Grants and Contracts 16,350,767 - Contributions from HCC Foundation 743,812 (743,812) Investment Income (Loss) 134, ,536 Loss on disposal of assets (564,591) - Net Nonoperating Revenues (Expenses) 38,499, ,724 INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONS AND ADDITIONS TO ENDOWMENTS (3,531,135) 728,807 State Capital Grants 3,425,649 - Harford County Capital Grants 488,099 - Contributions for Permanent Endowments - 533,492 INCREASE IN NET POSITION 382,613 1,262,299 Net Position - Beginning of Year 133,978,276 8,590,355 NET POSITION - END OF YEAR $ 134,360,889 $ 9,852,654 See accompanying Notes to Financial Statements. (15)

18 STATEMENT OF CASH FLOWS Harford Community College CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees $ 15,261,134 Payments to Suppliers (23,916,454) Payments to Employees (36,000,990) Auxiliary Enterprise Charges 5,218,065 Other Receipts 1,261,791 Net Cash Used by Operating Activities (38,176,454) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Federal Student Loan Programs Receipts 3,639,282 Federal Student Loan Programs Disbursements (3,639,282) Federal Grants and Appropriations 6,008,630 State Grants and Appropriations 13,223,273 County Grants and Appropriations 16,345,701 Private Grants and Contributions 858,667 Net Cash Provided by Noncapital Financing Activities 36,436,271 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital Grants Received 7,321,773 Purchase of Capital Assets (2,140,815) Proceeds from the Sale of Capital Assets 37,375 Net Cash Provided by Capital and Related Financing Activities 5,218,333 CASH FLOWS FROM INVESTING ACTIVITIES Investment Income 134,766 NET INCREASE IN CASH AND CASH EQUIVALENTS 3,612,916 Cash and Cash Equivalents - Beginning of Year 26,763,030 CASH AND CASH EQUIVALENTS - END OF YEAR $ 30,375,946 Cash and Cash Equivalents - Current $ 26,559,508 Cash and Cash Equivalents - Capital Projects 3,816,438 Total $ 30,375,946 See accompanying Notes to Financial Statements. (16)

19 STATEMENT OF CASH FLOWS (CONTINUED) Harford Community College RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (42,030,491) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 4,907,695 Certain Fringe Benefits Paid Directly to the State of Maryland 2,627,547 Effect of Changes in Operating Assets and Liabilities: Accounts Receivable (1,178,509) Inventories 33,938 Prepaid Expenses 249,587 Due from Foundation (266,551) Deferred Outflows (65,970) Accounts Payable (1,431,382) Accrued Salaries (1,130,343) Deposits Held for Students 14,522 Unearned Revenue (57,250) Accrued Compensated Absences 20,673 Other Accrued Liabilities (18,695) Net Pension Liability 177,483 Deferred Inflows (28,708) Net Cash Used by Operating Activities $ (38,176,454) See accompanying Notes to Financial Statements. (17)

20 NOTES TO FINANCIAL STATEMENTS NOTE 1 FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity Harford Community College (the College ) is considered a body politic under Maryland State law as an instrumentality of the State of Maryland (the State ). The College is governed by a nine-member Board of Trustees, who are appointed for five-year terms by the Governor of the State. Funding is received from both the State and Harford County (the County ). The State portion is based on a formula established by statute, which includes a portion of funds based upon full-time equivalent students as reported two years earlier. Although the College is not an agency of the County, as a result of the College s relationship with the County, the College s financial statements are considered component unit financial statements and are included in the Comprehensive Annual Financial Report of the County in accordance with accounting principles generally accepted in the United States of America. The Harford Community College Foundation, Inc. (the Foundation ) is a legally separate, tax-exempt component unit of the College. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the College in support of its programs. The Foundation is governed by a Board of Directors. Although the College does not control the timing of receipts from the Foundation, all of the resources, or income thereon, which the Foundation holds and invests, is restricted to the activities of the College by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of the College, the Foundation is considered a component unit of the College. In accordance with Governmental Accounting Standards Board (GASB) Statement No. 39, Determining Whether Certain Organizations Are Component Units, the Harford Community College Foundation, Inc. is presented in a discrete format. The Foundation is a private nonprofit organization that follows standards for financial statements for not for profit organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the Foundation s financial information in the College s financial reporting entity for these differences. A summary of the College s and Foundation s significant accounting policies follows: Basis of Presentation The College presents its financial statements in accordance with GASB Statement No. 34, Basic Financial Statements and Management s Discussion Analysis for State and Local Governments, and No. 35, Basic Financial Statements and Management s Discussion Analysis for Public Colleges and Universities. The financial statement presentation provides a comprehensive one-line look at the total entity and requires capitalization of assets and recording of depreciation. GASB Statement No. 34 identified three types of special purpose governments (SPG): (1) those engaged only in governmental activities; (2) those engaged (18)

21 NOTES TO FINANCIAL STATEMENTS NOTE 1 FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation (Continued) only in business-type activities (BTA); and (3) those engaged in both governmental and business-type activities. Business-type activities are financed in whole or in part by fees charged to external parties for goods and services. Given the importance of tuition, fees and other exchange-type transactions in financing higher education, the College adopted the financial reporting model required by SPG s engaged in business-type activities. The BTA model requires the following in component unit financial statements: Management s discussion and analysis Statement of net position Statement of revenues, expenses and changes in net position Statement of cash flows Notes to the financial statements The College s financial statements are prepared using the format of an SPG engaged only in business-type activities, with an economic resources measurement focus, under the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when incurred (when there is a legal contractual obligation to pay). The statements are intended to report the public institution as an economic unit that includes all measurable assets and liabilities, financial and capital, of the institution. The statement of revenues, expenses and changes in net position for SPG s engaged in business-type activities requires an operating/nonoperating format to be used. The College has elected to report its operating expenses by functional classification. The statement of cash flows is presented using the direct method, which depicts cash flows from operating activities and a reconciliation of operating cash flows to operating income/loss. Colleges engaged in business-type activities and reporting as BTAs follow GASB standards applicable to proprietary (enterprise) funds. One of the primary purposes of financial reporting is to account for resources received and used, as well as accounted for and reported. In certain situations, both restricted and unrestricted net position may be available to cover an expense incurred. In those few cases, as long as the expense meets all of the requirements of the restricted net position, restricted resources would be applied first. Operating and Nonoperating Components Financial statement operating components include all transactions and other events that are not defined as capital and related financing, noncapital financing or investing activities. The College s principal ongoing operations determine operating flow activities. Ongoing operations in the College include, but are not limited to, providing intellectual, cultural and social services through two-year associate degree programs, continuing education programs and continuous learning programs. Operating revenues of the College primarily consist of tuition and fees, grants and contracts, and auxiliary enterprise revenues. (19)

22 NOTES TO FINANCIAL STATEMENTS NOTE 1 FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Operating and Nonoperating Components (Continued) Financial statement non-operating components include transactions and other events that are defined as noncapital financial activities, capital and related financing activities, and investing activities. Noncapital financing activities include borrowing money for purposes other than to acquire, construct or improve capital assets and repaying those amounts borrowed, including interest. Also included are certain inter-fund and intergovernmental receipts and payments such as state appropriations and student organization transactions. Capital and related financing activities include (a) acquiring and disposing of capital assets used in providing services or producing goods; (b) borrowing money for acquiring, constructing or improving capital assets and repaying the amounts borrowed, including interest; (c) paying for capital assets obtained from vendors on credit; and (d) obtaining local, state, and federal grants for acquiring, constructing, or improving capital assets. Investing activities include acquiring and disposing of debt or equity instruments. Cash and Cash Equivalents Cash and cash equivalents include debt instruments with a maturity at acquisition of three months or less and funds invested in the Maryland Local Government Investment Pool (MLGIP), which provides local governmental units of the State an investment vehicle for the short-term investment of funds. The College considers this investment to be a cash equivalent. Cash held for capital projects is unrestricted as to use; however, the amounts have been set aside to cover expenditures related to capital projects. Accounts Receivable The College has accounts receivable related to tuition and fees and other grant and contractual relationships. Tuition receivables are obligations of students resulting from course registrations. Amounts that remain uncollected are considered delinquent and may be referred to a collection agency. The allowance for doubtful accounts for the College was $306,927 at June 30, The College s tuition and fee revenue is reported net of any scholarship allowance. A scholarship allowance is defined as the difference between the stated charges for tuition, goods and services provided by the College, and the amount that is paid by the student and/or third parties making payments on behalf of the student. The scholarship allowance represents the amount of dollars the College receives as tuition from outside resources such as the Title IV Federal Grant Program, restricted grants and the College s own Board of Trustees grants. Funds received for tuition costs from outside resources are reported in the appropriate revenue classification. Certain aid, such as loans and third party payments, is credited to the student s account as if the student made the payment. The College netted student aid expense against tuition revenue in the amount of $5,904,684 for fiscal year Promises to Give Contributions are recognized when the donor makes a promise to give to the Foundation that is, in substance, unconditional. Contributions received are recorded as unrestricted, temporarily restricted (expendable), or permanently restricted (nonexpendable) support depending on the existence and/or nature of any donor restrictions. (20)

23 NOTES TO FINANCIAL STATEMENTS NOTE 1 FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Promises to Give (Continued) Promises to give to be received in a future period are discounted to their net present value at the time the revenue is recorded. The Foundation s promises to give are discounted at a rate of 3%. The Foundation uses the specific identification method to determine uncollectible promises to give. As of June 30, 2017, management determined there were no uncollectible promises to give. Investments College and Foundation investments are carried at fair value. The College s investments in the MLGIP are reported at cost, which approximates fair value. Fair value is the quoted market price of the investment or the net asset value for mutual funds. The change in unrealized appreciation or depreciation of the Foundation s marketable securities for the year is reflected in the statement of revenues, expenses and changes in net position. Realized gains and losses on sales of investments are computed on a specific identification basis and are recorded on the settlement date of the transaction. Certain investments are effectively restricted as to use to the extent of permanently and temporarily restricted net assets. Beginning on February 1, 2017, the Foundation invests with the University System of Maryland Foundation (USMF) in a comingled investment fund. These investments are recorded at fair value. Prior to then, the Foundation invested in a professionally managed portfolio of equities, mutual funds and money market funds. Such investments are exposed to various risks such as interest rate, market and credit. Due to the level of risk associated with such investments and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term would materially affect investment balances and the amounts reported in the financial statements. Inventories Inventories are stated at the lower of cost or market and consist primarily of items held for sale in the College Store and consumable supplies. The cost of these items is recorded as an expense at the time they are relieved from inventory for use. Inventories are determined by actual count and priced on the first-in, first-out basis. Capital Assets Capital assets are recorded at cost or fair value at the date of donation in the case of gifts. The College s policy is to include only those capital assets with a purchase price or fair value at donation of at least $5,000. The entire library collection is recorded and valued at cost or estimated cost. Additions constructed via funds from State or County governmental agencies are stated at the cost. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. (21)

24 NOTES TO FINANCIAL STATEMENTS NOTE 1 FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capital Assets (Continued) Depreciation is provided over the estimated economic life of the item on a straight-line basis as follows: Category Years Buildings Computer Technology 5 Library Books 10 Furniture and Equipment Land Improvements 7 20 Vehicles 7 Encumbrances The College maintains an encumbrance system for tracking outstanding purchase orders and other commitments for materials or services not received during the year. Encumbrances at year-end represent the estimated amount of expenses ultimately to result if unperformed contracts in process are completed. It primarily consists of encumbrances related to capital project spending and various contracts for services within the general operating fund. Encumbrances outstanding do not constitute expenses or liabilities and are not reflected in these component unit financial statements. Encumbrances at June 30, 2017 were $1,587,299. Compensated Absences It is the College s policy to allow employees to bank unused annual vacation leave up to a maximum of 10 days. Employees are allowed four months subsequent to fiscal year end to utilize any vacation leave which exceeds this bank amount. Sick leave days carry over is not subject to limitation. Sick leave days are not paid out at termination except in the case of retirement and 10 years of serviceable employment where a maximum of 360 days can be paid out at a per diem rate of $30. Unearned Revenue Tuition and fees are recognized in the academic period that they are earned. Amounts received for future semesters are deferred until earned in the related academic period. Tuition received for the summer semester is recognized equally over two periods as approximately half the semester relates to the current fiscal year and half of the semester occurs during the next fiscal year. The Foundation s deferred revenue represents amounts received for fundraising events held subsequent to fiscal year-end. (22)